Banks groan as govt pulls out funds
By Enitar Ugwu
and Gbenga Agbana
FOR many banks in the country, the doomsday has already come. Since last week, they have been finding it increasingly difficult to meet customers' demands for cash withdrawals.
The trend continued yesterday. The immediate cause of the development, The Guardian learnt, is the withdrawal of public sector funds from the banks on the authority of the Central Bank of Nigeria. It is also a direct consequence of the refusal of the big banks to release fund to the inter-bank market, following the July 6 directive by the CBN that the banks should capitalise to the tune of N25 billion, within 18 months. The CBN directive has already been endorsed by its governing board and President Olusegun Obasanjo.
The stock market is not faring better, as much of the trading there is usually financed by banks.
According to the CBN, the call rate at the inter-bank market, last Thursday hovered between 11 per cent and 25 per cent, while the seven-day rate stood at 15 per cent and 34 per cent.
The height of the liquidity in the system was underlined by banks' aversion to long term financial dealings.
There was also no dealing in the 30 day, 60 day, 90 day and 180 day favoured inter-bank market.
Confirming the dilemma, a bank chieftain revealed to The Guardian that unless the apex bank took a drastic step to arrest the situation, many of the medium sized banks would begin to experience crises.
The source disclosed that high networth individuals had since last week started withdrawing funds from several banks; a trend, he said, was likely to continue this week.
The CBN spokesman, Mr. Tony Ede had penultimate week informed that the apex bank withdrew only N8 billion from the system.
He explained that the CBN actually targeted four parastatals whose funds were still lodged with various banks.
Ede noted that only one out of the four that were directed to bring in their funds had actually complied and that they returned the N8 billion.
The CBN spokesman said that only M-TEL had given a convincing reason for its failure to comply with the directive yet.
Justifying the CBN's insistence on withdrawing the funds, Ede said that even at now the system is awash with liquidity and that the CBN move was to arrest the situation.
According to him, that many banks are feeling the pinch shows that most of them had been surviving on inter-bank dealings which should not be.
The CBN's Monetary Policy Committee (MPC) had at the end of its July meeting, backed the recall of parastatals fund from banks.
In a statement signed by its secretary, Mr. James Olekah, the committee approved the withdrawal of N74.5 billion, representing 75.6 per cent of the total public sector deposits in banks.
The move it said, would help to sustain the on-going tightening of liquidity level in the country and stem the rising inflationary pressure and the high demand for foreign exchange.
The capital market has also been hit by the development as the usual large amounts it used to get from banks had whittled down significantly.
Some stockbrokers, who spoke with The Guardian on the development, said that the CBN action had taken its toll at the stock exchange since banks invest huge funds in the capital market to get quick returns.
At the close of transactions last week, the All-Shares index of the Exchange fell by 2.24 or 609.29 points from 27,202.69 points at which it opened for the week. It closed at 26,593.40 points. Market capitalisation on the other hand, rose by N43 billion or 2.24 per cent, from N1.929 trillion to N1.886 trillion.
Companies in the top 20 category of the most capitalised stocks on the Nigerian Stock Exchange, recorded major price losses last week.
For instance, the Northern Nigeria Flour Mills Plc led on the week's price losers' chart, down by 842 kobo to close at N20.08, while Total Nigeria Plc lost 820 kobo to close at N193 per share.
Conoil Plc, Mobil Oil Nigeria Plc, Guinness Nigeria Plc, Cadbury Nigeria Plc and the Nigerian Breweries Plc also lost 405 kobo, 400 kobo, 300 kobo 298 kobo and 249 kobo respectively.
Mr. Ariyo Olusekun, the managing director of Capital Asset Securities, a council member of the Chartered Institute of Stockbrokers, (CIS), said that some investors in the stock market are being financed by banks. They have, therefore been incapacitated, since the withdrawal of parastatals funds from them, he added.
"The market has been down for sometime now. The withdrawal of parastatal funds from the market is a factor. Banks themselves finance investments. Banks now have shortage of funds," he added.
Board of the CBN has already given official backing to its Governor on the reforms the apex bank is at present embarking upon.
The Guardian learnt that this approval was given about two weeks ago.
Confirming the development to The Guardian, Ede stated that the reform had received the approval of the management and Board of the apex bank.
He explained that because the reform was for the benefit of the economy and by extension the entire country, everybody in the apex bank was carried along.
He equally noted that a look at the calibre of personalities in the board and management of the CBN was enough to convince anyone that they were not the type of people to be hoodwinked.
The Board is made up of the Governor, Professor Charles Soludo, who is also the chairman, the others are Dr. Shamsudden Usman, Deputy Governor - Operations, Mr. Ernest Ebi, Deputy Governor - Policy; Mr Tunde Lemo; Deputy Governor - Financial services surveillance; and Mrs W.D.A. Mshelia; Deputy Governor - Corporate Services.
Other non-executive board members include; Hayford Alile, Professor M.O. Kayode, Samson Akono, Mallam Bashiru Turkur, Dr. Uche Azikiwe, Dr. Haruna Usman Sanusi, permanent secretary, federal ministry of finance, and Daniel Bango, who is a Director in the CBN but doubles as secretary to the board.
A CBN insider pointed out that, with the board's approval in the kitty plus the presidential backing, the apex bank is going all out to carry out the reforms to its logical conclusion because of the inherent gains it has for the economy.
